Real Vision Classic: When Michael Saylor Decided To Go ALL-IN on Bitcoin (2020)

31:31when they're wrong. They're still kind of interestingly right. And I think they make us better versions of ourself. But putting that aside, I was minding my own business, running MicroStrategy, trying to be the best business intelligence company we can. And I would say that's 150 % focus on the P &L. And I was not, you know, and with regard to investment, my investment world consisted of this rowel it's like i was a technology investor in the year 2012 i published a book the mobile wave and in the mobile wave i in essence said software is leaping from out from under your desk beyond your laptop onto a mobile device it's going from solid state to liquid state to vapor state and it's going to be like vapor all around us and what that means is that the entire software world is becoming networked, networked vapor state, incredibly powerful dematerialized versions of products and services.

32:40And so the summary is, is Apple computers going to rule the world by Apple, Facebook, Amazon, Google. If you read the book, that's what I wrote. I mean, the epiphany was 2009. I asked my niece who was nine years old, you know, what do you want for Christmas? And she said, I want the big Apple. And I said, you want a trip to New York City? And she goes, no, I want an iPad. OK, and I thought Apple is going to replace New York City. Apple's got to rule the world. So my investment thesis was quite simple. you know apple facebook amazon google a simple way for a tech investor to think is you buy a dominant network according to metcalfe's law that's won the market the mobile network the information network the video network the social network i just named apple google youtube facebook the you know commercial very simple buy the dominant network and wait while all the naysayers on Wall Street and all the talking heads and all the people that know better tell you why you, you know, hedge.

33:49I hate the word hedge. Like, you know, I could tell you Wall Street luminaries in 2012 would lecture me on, they would say, you know, you shouldn't buy too much Apple stock. We've got a mutual fund. And what we do is if your Apple stock gets to be too much of your computer portfolio, we sell it and buy HP and IBM to diversify you. And I said, well, guys, don't you realize that eventually Apple is going to eat them all and there won't be a need for HP or IBM or anybody. And what happens when Apple is 150 % of all the profit in the entire tech industry, right? Well, we don't see it that way. Okay.

34:28That's what they thought. And then they go, well, you know, we're going to protect you. If your share of your portfolio is too much technology, we're going to sell technology and we're going to buy all these other assets. And I was like, but guys, what happens when technology eats everything and there aren't any other assets? Okay, in my opinion, and I'm going to be snarky here, I think an ignorant investor thinks that technology companies are a part of the index or they're a part of the industry. In my opinion, as a science historian, John D. Rockefeller was running a technology company. If you study the history of Standard Oil, he did everything that Jeff Bezos did 100 years earlier.

35:14And if you study General Electric, once upon a time, electricity was pretty technically interesting. And if you've actually been to the Hershey's factory in Pennsylvania, not a one of these investors could build the damn thing. Hershey's factory is a computer built in steel welded, which is the most majestic, majestic creation of mankind you could possibly imagine. Imagine running a computer program and billions of dollars of steel and moving parts that spits out 100 ,000 candy bars an hour. You know, without contaminating them. You know, it's you think it's not technology or or craft. you know i create ketchup the technology was i had a clean room technology i had to take the tomatoes manufacture the ketchup put it in a sealed container without any bacteria in it so that it didn't rot over the course of the next year okay it's clean room technology no different than intel semiconductor chips so when these people think oh well we're not buying a technology company.

36:23It's like every company that ever succeeded was a technology company. And the only reason it grew was it had technology superior to everybody else. So I happened to, you know, back to 2012, I thought my investment thesis is you buy technology companies that have a dominant place in their industry that are going to eat everything. And then you just wait while all the people that don't really think hard about this short you or diversify out of you. And eventually some 80 year old investor that's got more money than God will discover that Apple computer is not some newfangled, you know, gimmick, right?

37:05Eventually, and he will buy it at 10x what you bought it for. And, and, and then it will double again. Right? And he will make some money, and you will have made some money, but you'll have to be beat to death by well, well educated, well-intentioned diversifying experts while you wait for that to happen. And they're going to say things like, we're going to hedge you out of this, or we don't want to take too much risk on Apple, don't want to take too much risk on Google. What if you had diversified your Google search engine into every other search engine for the last 20 years? One of the things I've talked about many times is there's a lot of people who want to trade.

37:46They think trading makes money. When you look at people who've built real wealth, it's basically one bet. Bill Gates is who he is because he didn't sell his stock, essentially. And that's the same. People take one clear bet, filter out all of the noise, and just pursue it. Yeah, Raul, I listened to your phrase, irresponsibly long, right? But it's really tongue-in-cheek. You're not irresponsibly long. You're just unfortunately rational. Maybe the word is like maybe slightly early being rational. You're making a rational decision. no what's the word for unpopular you're rational and unpopular exclude exclusively rational maybe that's the word exclusively rational so once you understand what's going to happen you kind of got to do it i i bought a lot of bitcoin recently like over the past before that why the hell did you have so much cash you know that was the question i was thinking okay great you bought bitcoin how come you have so much cash aren't you supposed to make cash if you're in business you're supposed to make money but what do you do with it it's just sitting in the business okay well this takes me back uh back to where we went off on my little tangent which is i was minding my own business running micro strategy where you know running the pnl I was a wage earner.

39:37You go and you make a salary and you spend less money than you make. It's a 20th century idea. My dad taught me that. Depression error economics, spend less than you make. So we're making money, spending less than we're making, putting cash in the bank, and we're struggling to compete against, you know, my competitors are IBM, Oracle, SAP, you know, Microsoft. They're all 100 times bigger than us. We're the independent. We're the, you know, the Switzerland. So we're doing that. That kind of takes up a lot of your attention. And I'm not really paying attention to macroeconomics. I don't you know the my my investment thesis as I said was buy tech stocks but like you can't buy tech stocks as a public company CEO and put the treasury into tech stocks and you certainly couldn't do it in the year 2012 you might do in your personal portfolio but but the the conventional wisdom if you're running a corporate treasury is you're going to buy you're going to put cash and you're going to buy short-term treasuries, short-term T-bills.

40:42And I happen to believe before the financial crisis, you know, I remember the time when you can make 5.5 % interest on overnight money. We're getting 5.5 % yield. You have$500 million, you're getting paid$30 million. By the way, I happen to remember when savings accounts paid 6 % interest. It's like, and by the We didn't think we were getting a good deal from the bank. We thought that was totally reasonable. And every conventional wisdom was the risk-free cost of capital is 6 % to 8%, and then you've got to tack on a risk premium of 4%. So your real cost of capital is 12 % to do anything, and that's the old thing.

41:27So that's the way I thought about the Treasury. And then I thought, and then there were other people, what else can I do with the money? You can buy your own stock back or you can buy another company. Now, I teach a course in management theory to all my managers. And my number one question is, how do you wreck a software company in my history? And by, Raoul, I'm like the longest presiding public company CEO in the enterprise software industry. Nobody has been CEO of a public enterprise software company longer than me. 22 years, 88 quarters. I count them one at a time. Everybody came and gone. Okay, how do you wreck a software company?

42:12You know, you have an answer for me. What do you think? Number one way to wreck it. I'm assuming it's going to be across somebody else. Make a acquisition. Make a bad acquisition. Okay, bingo. The CEO of SAP comes in. He lasts for nine months. He buys autonomy. they take an$11 billion write-off. It's pretty impressive to burn$11 billion in 11 months on one transaction that you probably spent, I don't know, a few hours on. How many lifetimes, how many million lifetimes to make$11 billion? So the number one way to kill a company is make a bad acquisition. So I got all this cash. Do I go buy something?

42:57I have lived long enough to see 90%. How about Microsoft buying Nokia? That was a good idea, right? By the way, you could have seen that one coming a mile away. That was the most awful idea you could imagine. You want to count the number? 90 % of all acquisitions end awfully, right? And there's a few accretive ones. If you buy a small company, pump it through a massive distribution channel, don't jack it up by a factor of 10 with no variable cost. You know, maybe it works. But acquisitions are bad. So I'm not going to buy a company. So what else do you do with the cash? You buy your own stock back.

43:38OK, how many how many companies have gone Toys R Us, gone bankrupt because they bought that, you know, they lever up, they issue a massive dividend, they drain the capital, right, drain all the capital out of the company they're running on. what happened if you were actually running on on vapor when covid hit yeah it's all over everybody is insolvent they're all out of business overnight okay so that's another way to kill the company you drain all your capital so so what's left what what the heck is left okay Steve Jobs is my hero. Steve Jobs had a near a near death experience with this company.

44:25Apple Computer was almost, you know, there was a point when Michael Dell told Apple they should just give the money back to the shareholders and shut down. Right. That's a tweet you probably don't like coming. OK, so Steve Jobs kept all that cash, you know, till the day he died and they accumulate. they didn't buy back the stock. I would, you know, I thought maybe I would like micro strategy to not die. And so I was going to keep the capital. And by the way, so I can serve the customers. Yeah, you have nightmares of your CFO. The nightmare is you let a customer down. Right? Like when someone actually invest$10 million in my company software, and then they build something with it and they deploy it you know like you're gonna go tell them oh we decided not to update the software let me put it a different way how would you feel if you put a hundred million dollars into bitcoin and then the miner said we're turning off the rigs and the developer said we're not gonna patch the bug or upgrade and so it's just gonna stop working right so you have a you have an ethical moral obligation to your customers and a lot of times these ceos is they kind of get cute.

45:38This is the problem with the LBO guys. We're going to get cute. We're going to buy it. I'm going to buy Marvel Comics. I'm going to leverage it up, drain the capital out of it, and bankrupt Marvel, right? Happened, right? Sad happened, right? So don't want to do that. So what can I do? I just leave the cash in the bank, and I'm buying the stock back at some rate, and then along comes COVID. And COVID is this transformational experience. Thomas Kuhn in The Structure of Scientific Revolutions, which is the seminal work on the history of science, he wrote, when the paradigm shift comes along, right, the old guard, you know, when we invent antibiotics or the science of sterilization or nuclear energy or whatever it is we invent, The old guard rejects it.

46:34No one accepts it until they're dead unless there's a war. And the one thing that will get people to change their mind is when they die and their kids take over. That changes some minds. Right. And and the other thing that gets people to change their mind is a war. World War Two, you know, and as Trotsky said, you may not be interested in war, but war is interested in you. and when the war arrives you all of a sudden get interested in stuff that you were able to ignore because it was of academic interest to people somewhere else so this year we got two wars we got a war on covid and it and it and by the way what's the war on covid done i would have fired you ral if you told me you wanted to work from somewhere other than my office I you know I would have said you don't show up to my office you're not sitting next to me you don't have a job here last year I was firing people that didn't want to come to work let me tell you what happens next COVID hits lockdown hits I'm like I'm hating that idea then I gotta have a meeting and at 9 a.m in the morning we got a meeting and we're on on video conferencing technology A, which I will not mention.

48:02And the line drops, the sound doesn't work. There's a warble. I throw a little hissy fit. All my IT people scramble. By 11 a.m., we're on video conferencing technology 2. And I got 12 executives and we're talking blah, blah, blah, blah, blah, blah. And two of the executives freeze and one of them doesn't work. And I throw a second hissy fit. By 1 p.m., they're like, well, you know, Mike, we've got this thing called Zoom and we haven't tried it yet, but we thought we might try that. I said, hook it up. By 2 p.m., we're using Zoom. It's working well, like you and I are working well. By 4 p.m., email goes out from the CEO to the entire company.

48:53Zoom is not a corporate standard. We will discontinue all other uses of video conferencing. Everybody in the company will be certified on Zoom, Zoom webinars, Zoom video recordings. You know, a stipend to purchase your own home microphone will go out to everybody. Buy green screens if you need to. I expect it to be done. No more meetings other than Zoom. Boom. By 9 a.m. the next morning, 2 ,500 people have turned left. OK, that's what war will do to you. OK. In a hurry. It's like because you got to. Now, the first war was the covid war. And that changed everybody's P &L. And that's half the business.

49:39I have a five hundred million dollar operating business and we sell enterprise software. And in a matter of weeks, we needed to figure out how to sell that stuff virtually and how to deliver service virtually. And 500 consultants went from being on site to being remote. And, you know, like the war hit, Raoul, and we started worrying about what's going to happen to our business. Nobody knows. Four weeks later, 500 people had gone remote. And I was waiting to see, like, whether a meteorite was going to hit me on the head. And, you know, whether whether there's going to be mass destruction with the revenues crumple, would customers go ballistic crazy?

50:20OK, and then here's what happened. We stopped spending five million dollars a quarter on on running around on flying around in hotels. Our next 15 million dollars worth of marketing events, trade shows got canceled on us. then we realized we couldn't stage 150 000 symposiums even if we wanted to and then we realized that every expensive sales and marketing and services activity we had previously heretofore engaged in was no longer appropriate or practical or possible or relevant or necessary. We're like, I think I just made$40 million a year. And by$40 million a year on a $500 million a year revenue stream, I got kicked.

51:18I got kicked in the ass with a golden horseshoe. I don't want to make light of it, because a lot of people are suffering a lot of pain. okay and there's an you know someone's one person's sick cost savings another person's revenue right so if you look at the other point of view there's a lot of people in the events industry the hotel industry the airline industry etc and they're suffering right but i'm the ceo i have to be the fiduciary for my shareholders and for my customers and at the end of the day what happened at the pnl is we realized we were going to be much more profitable and be much more efficient after this, despite the CEO kicking and screaming, being dragged into the virtual age, right?

52:04Right. So that's me. I had an opinion. I was wrong. War hit me. Bang on the head. Okay. I see it differently today. And by the way, at that point, I saw what everybody else in the virtual world had been seeing so clearly three years before me, four years before me. But I had to go through three different vendors and I had to change my technology. My customers had to be forced to take my technology. My employees had to be forced. If I had walked in and I said to the CIOs that I deal with, I'm not going to meet with you face to face. I want you to Zoom to me. Twelve months ago, they would have told me to go pound sand.

52:45So what happened really was the war changed everybody's behavior. right and and so we got uh now i'm gonna pick it's a lead in quote right i mean there are decades when nothing happens and there are weeks when decades happen right and so the war didn't change me the war changed everybody and so my pnl is different my operating income is different and now that takes us back to the balance sheet the balance sheet which was an afterthought i got a bunch of money. I'm buying some stock back. Our stock, you know, got hammered through the floor. And then what happens? I'm watching the market and I'm living the pain of Main Street.

53:32And I'm watching that all of these operating businesses are getting destroyed, getting destroyed. And it's just the most horrific, awful thing of my career. Horror, right? It's like, I have no words for it. I'm not even going to articulate the words for it, except for to say, I watched and felt with a horrifying pain, the dismantling of my entire worldview, of which, not a big fan. Okay, now, Having watched that change, then I watched a V-shaped recovery with talking heads on MSNBC. And I just watched the market go like that. And I watched every equity go through the roof. You know, Apple stock goes, it doubles, even though any rational person's, how can Apple be worth twice as much when half of the world's economy just got wrecked?

54:36and when their revenues and their earnings are looking constant. So the earnings multiples blow through the roof, right? And then I watch. This is one that blows my mind, Raul. If you told me, if you're a bond salesman and you said to me, Mike, I have an idea for you. I want you to buy 30-year government bonds that are going to yield 2 % interest for the rest of your life. I said, are you out of your mind? Are you out of your, you must be crazy to sell me these bonds. Those bonds had a 22 % gain in 12 weeks. So you would have made a 22 % gain on the long bond index. I'm like, and I feel like an idiot.

55:29Like I would have made money buying bonds at 2 % yield for the rest of my life. I would have made money buying leveraged equity of everything as the world is going through the floor. And I'm holding my little bucket of cash as this is happening. And that takes me to my second war. But the first war is the war on COVID. The second war is the war on currency. But like, people say there's a currency war. I heard it. I didn't understand it. I thought currency war, by the way, I don't even know if everybody agrees or even under interprets it the way I do. I thought currency war was the U.S. wants to weaken its currency so that our exports are more affordable in Europe.

56:16I thought, well, that's kind of cool. You know, when the currency weakens, all of my revenues in Europe, denominated in the euros, go up by 20 percent. and my revenues and dollars go up by 20 % and it's good for my stock in dollars. It's like, that's kind of cute. That's our currency adjustment. We get that every quarter. And if the US dollar is weak, we feel good about it. When the US dollar is strong, we have currency headwinds. Okay, that's second order currency war. Okay, the first order currency war is everybody in the world's declared war on currency. And you're$100 million in the bank that bought a bond that, you know, maybe I buy a bond for a million bucks that yields$50 ,000 a year.

57:09Okay, that's an asset that's interesting to me. I want to retire, I buy a million dollar bond yielding 5 % interest and I get$50 ,000 a year. When the currency war hits, now that bond trades up to$2 million and it yields$50 ,000 a year, but it's 2.5 % yield. So what happened was the bonds shoot through the roof and they appreciate by 100%. What really happened in the past 12 weeks is assets. We saw asset inflation of 25 % to 40%. okay cpi is such a misnomer right like people talk about inflation like it's cpi well you can measure the inflation rate of of consumer products and services yeah i buy a domino's pizza and i buy netflix and i buy youtube those aren't inflating when i measure the market basket of consumer assets.

58:10It's like my retired dad would like to buy a million dollar bond that yields$50 ,000 a year in interest. When I measure that, you're talking about, you know, six, seven, eight percent in a normal year as the money supply increases. All of the things that I want to buy, I'm being snarky, all the things I want to buy are going up eight percent a year in a good year. All the things that are being given away for me that are manufactured by machines and robots. RAOUL PAL There's also a function of this. And just listen to you as I just clarify the thought for me. The function of inflation is generally driven by demand.

58:46I don't believe it's necessarily fully a monetary phenomenon. Maybe demand is possible, but demographics plays a big part. The largest demographic wave of all time are the baby boomers. Those guys, guess what they want to buy? Retirement assets. And so there's a perceived value in that. So it's kind of crowded within certain things. And it's created this enormous bubble in it. And that's where my dispute is with all the entire media fixation on inflation as CPI. It's like, do I want to buy a million dollars worth of Domino pizzas? And do I want to buy a million dollars worth of Netflix or a million dollars worth of consumable products?

59:34Or do I want to buy a million dollars worth of assets that let me not work for the rest of my life? Well, they're measuring the things that are easy to manufacture with a robot or a factory. They're not measuring the things that I want. Because the things that I want are scarce assets that have a yield. And let's take a share of Apple stock. Well, you wanted a share of Apple stock when it was a quarter of what it costs today. It now costs four times as much. How can you say inflation is 2 % if the thing I wanted to buy went up by 400 %? Without the underlying business changing. Without the underlying business changing.

1:00:21Now we come back to currency war. The war is on the currency, and the result is 25 % inflation on currency. If you're holding currency, what can you convert treasury assets to? You can convert them into other assets. I'm not going to buy Domino's pizzas with treasury assets. I'm going to eventually buy a stock that has a dividend or a stream of cash flows, or I'm going to buy a bond that has a stream of cash flows. And right now, the bond that I can buy is going to yield 1.3 % interest for the rest of my life. So now you start thinking, I didn't have to really think about it until I got hit in the head with the two by four of this currency war.

1:01:13And then if I wasn't paying attention, the internet explodes, MSNBC explodes. If you haven't noticed it now, right? I mean, you must be living under a rock somewhere, right? It's pretty noticeable. So then I start getting introduced to the concept of, I always knew nominal interest rates were low. That I get. But then I start thinking about real interest rates. But it was just, oh, the real interest rate on a 10-year bond is like, well, minus 1%. Well, no, it's not. I mean, it's only minus 1 % if you buy into the notion that CPI is inflation. But if you actually start thinking in terms of inflation is a vector based upon what you want to acquire with the cash, then you realize the rate at which tech equity has been inflating is a lot faster than like, what's the rate at which Apple stock has been going up?

1:02:14Is that at CPI? Is that 10 %? Is that 50%. So now if I look at asset inflation, I start thinking, at that point, the real yield on my cash. RAOUL PAL Yeah, but the bonds had a capital gains, as you pointed out before. So the net offset of bonds over the course of this year, bonds versus NASDAQ, it's been a pretty close run. Yeah, you're right. If you were smart enough, it's totally counter to my thinking. How could a person rationally lock up his company's capital for the next 30 years for 2 % interest? See, if I'm the CEO and you said - No, you'd invest it back in the business at the very least.

1:03:01If not, you're saying your business cannot generate a 2 % ROI. Okay. My problem is moral hazard. If I took$500 million and I put it into a 30-year bond yielding 2 % interest, and if any rational economist took over the Fed, you would think the interest rate is going to go to 4 % or 5%. Everybody knows that the economy cannot function with 0 % interest forever, right? Interest rate is the value of time. We're in a war with time. We want to stop. Will you give me everything that you own? Will you give it to me for the rest of your life if I return one third of it to you when you're dead? That's what 1 % interest is, Raul, right?

1:03:59Give me everything you own. I will give you 1 % of it back each year for the next 30 years. And when you're dead, your heirs will get 30 % of what you gave me now. So here's the moral hazard, or the dilemma for me as a CEO. If I invest the 500 million in the 30-year T-bills at 2%, I'm taking the risk. I'm making the bet that no rational actor will ever fix the problem in the Fed, right? Like, I have to bet all my company's treasury that the world will stay irrationally priced forever. It was the right bet for a Japanese CEO to have made. It's like, by the way, if Ray Dalio says cash is trash, right?

1:04:51Like, I don't know if he says it. The trolls say he says it. But, like, I'm going to wait for 30 years and see whether the government has inflated the cash, and then you're going to give me back the$500 million in 30 years. It's like, that doesn't make any sense because I'm pretty much better. I can't construct a rational argument whereby 30 years from now I will have made money on it. But here's what I would think. Any rational person would think that you lock up$500 million for 30 years at 2 % interest. When the interest rate goes to 4%, your bonds are going to trade down by 30 % or 40%, and you're going to lose the$200 million, right?

1:05:36So when I'm looking at it, I'm thinking, you know, that's the craziest thing ever, right? I can't imagine that. So if you're a shorter-term trader, I'm like, okay, have at it. Buy the 30-year long bond index. But no one seems to be thinking they're going to hold it for 30 years. So, but I, I can't get that. So, so on one hand, I look at that as just massive hazard, moral hazard, craziness. And on the other hand, I look at all these, all the equities. I'm like, well, I can't just buy individual equities. I mean, there's too much equity risk there. And in the meantime, I just watch, you know, I watch the talking heads.

1:06:15We get beat to death with this issue of real return. And I start to go to school on that. And I realize that you can calculate a real yield. if if your real yield is take the asset inflation rate and subtract that from the the nominal yield then the conclusion you come to pretty quickly is that the real yield on cash this year is minus 30 percent minus 25 percent right if you were holding the cash if you were holding a 30-year bond, you broke even, or maybe you're okay, but I'm not. If you're holding a two-, three-, four-year instrument, the real yield is obscenely bad. It's minus 10, 20, 15, 20, 30.

1:07:04It depends upon how you see that. The real yield on anything I was holding is bad. Now the question is, how do I get a positive yield? Like I use this phrase, I said, you know, I come to the horrifying conclusion that I'm sitting on a$500 million ice cube that's melting. It's melting at 6 % in a good year. And for the last decade, it's been melting at 6%. Okay, I was there, but I could ignore it. In good times, you ignore the 6%. But then when you have to actually get educated on macroeconomics, you realize it's been melting at 6%. And then you realize that this year, it's melting 25%. And then you have to look out over the next three years and ask the question, is it going to continue to melt at 20 % a year for the next three years?

1:08:02Is it going to melt at 15 % or 10 %? You know, and... If you think of it in your terms, because basically part of your construct is that opportunity cost is your negative yield, essentially, right? Now, let's say you're a corporate treasurer, and you've got 500 million, or the CEO, you've got$500 million. As you said, you could choose to make an acquisition. Well, guess what? It's 40 % more expensive now in the sector that you want to acquire. So as you say, your opportunity cost has been incredibly expensive by sitting in cash. So to offset that, which I guess is what your mentality is, you need an asset that can offset that opportunity cost without overpaying for the asset.

1:08:45You know, Raul, you say a wise thing that an investor gets. I was CEO. I didn't get it. I didn't get some things until I got it, okay, until this year. I would go to my investors and I said, well, we've got a great company. We've got$500 million,$600 million in cash, a great bulletproof balance sheet. and they looked at me like, we're not going to value the cash. They didn't value my cash. They thought it was worth nothing. And I kind of took offense to that. They don't get it. The cash means that we're indestructible. We're going to live forever and we can do the right thing by our employees, our shareholders, and by our customers.

1:09:24And why is it I'm being punished for being virtuous, for saving my money and for being responsible and conservative. And I was kind of angry, not angry, irritated a little bit, like they don't get it. And then I realized they kind of do get it. They had a different perspective. I just didn't understand what they were trying to tell me. And their perspective is, I mean, there's no rational investor that would raise a billion dollars and say, my plan is to put it in cash and wait, right? You can't go raise that money. So their perspective was assets are inflating at 6 % or 7 % a year in a good year.

1:10:00If I'm not beating 7%, I can't stay in this business. So that takes you to this notion that the asset inflation rate is actually just the cost of capital. okay and okay bingo your cost of capital if you're the ceo of a public traded company in a good year and a normal year is six percent or seven percent you better actually generate more than seven percent with it or you got to give it back to the shareholders i mean down to the razor thin margin Now, there's a certain elegance to that. Why didn't we actually do that? Well, it used to be we're thinking, I've got a bunch of capital. We were buying our stock back at a measured rate, you know, and we were very thinly traded.

1:10:51So if I bought 20 % of the stock back in the windows without moving the market, it takes me like seven years. You know, it takes me some number of years to buy it all back. You know, it's very frustrating. And if I like, if I, and I can't go any faster than that, you know, without doing a tender offer or the like. So we're, we're doing a bit of that. And then along comes the pandemic and everybody gets kicked into high gear and the opera, the P &L gets kicked into high gear and we're transforming. and then this macroeconomic change takes place and the cost of capital now, Raoul, it's not 6 % anymore.

1:11:26The cost of capital just spiked. And so the fascinating thing here is if you're a corporate treasurer, your cost of capital was 6%. This year, your cost of capital is 25%. And then all the assets that you could buy go through the roof. And now this is a problem, Do I go buy a company? 90 % likely, I burn the business. If I buy a bad acquisition, then I probably make a mistake. That's a peril. Do I go buy the S &P 500 after it spiked up? Today, the most crowded trade, right? They're saying the most crowded trade is - Well, also, the future expected returns are basically negative by most people's assessment for the next 10 years.

1:12:10So you're basically locking into a loss. It could very well be a lost decade for equities. So I watched television for the past like four months. And it's just it's amazing to me that the equity commentators managed to find something positive to say every single day. You know, every single day. It's amazing. So, yeah, that doesn't doesn't really work for me. So my cost capital spikes. I get sensitized to the issue. We start thinking we got to do something. Okay, so now you put yourself in my situation. You have$500 million in cash. Cost capital went through the roof. And every central banker wants to print more money.

1:13:04And every intelligent investor is telling you that cash is trash. What would you do if you're me? I came to the same conclusion you did. I mean, it's basically, is you need to look for an asset that's going to protect you in a number of scenarios that has a high expected upside, that beats the cost of capital. And so that's the only thing I can think of. And so to me, it came down to golden Bitcoin. So we tick through these. So what can I buy? I'm not going to buy an individual equity. I'm not going to buy another company. Can I buy a portfolio of commercial real estate? Oops, half commercial real estate is impaired.

1:13:45The other half is overinflated. And who's going to sell me$500 million worth of commercial real estate at a fair price that's not impaired this year? That's not going to work. So now I'm down to, can I buy an index of stocks? Well, anything you want to buy company-wise that's cheap is basically insolvent and comes with a bunch of debts. Anything that doesn't come with a bunch of debts is crazy, ludicrously expensive. OK, you're right. I get it. And so mark that off the list. So now what have I got? Precious metals and Bitcoin. So I look at two things that I completely dismissed was oblivious to my entire life, Raul.

1:14:27Right? And so all of a sudden, you get hit in the head with a two by four, and you cross off your list. Every door is shut to you, but these two other random doors. And so you got to open up the doors and start to look. And so now I go down the rabbit hole and I start studying. And you can learn anything on the internet. So all of a sudden, you get discovered by me. Pump gets discovered by me. I have this friend, Eric Weiss, who runs a crypto hedge fund. and a couple of years ago he told me about bitcoin i thought well that's crazy i kind of dismissed it out of hand like like well i mean couldn't someone else create a bitcoin cryptocurrency and then all the money will drain away and maybe you know how do you know it's going to work and so i just don't even look at it don't even think about it you know and um when all the other doors shut this one opens and now i now i have a problem right if someone took 500 million out of your bank, put it in your backyard, open the back gate.

1:15:35And then every month someone came in and they burned 2 % of your money. You know, it's like you go from thinking your money is safe to having extreme anxiety, extreme. So now I got a problem to solve. I first had to solve the P &L problem. Now we switched to the balance sheet. And so what do we do? Well, take this off. First, I go and I study the stuff and I get to introduce the stock to flow, right? And all of a sudden, I'm looking at plan B and what is stock to flow? Okay, 2 % of the gold supply gets inflated every year. And then I start doing the math and then I start thinking about it. I'm thinking, well, 2 % minus whatever, it's better.

1:16:22And then I start looking at crypto and I look at Bitcoin and then I realized, this is what I, and then I start with all the concerns about Bitcoin, right? What if it gets forked, right? I mean, you know, there's nothing more anxiety inducing than when someone puts eight pages in front of you of what happens to your crypto if it gets a hard fork or a soft fork and you're studying it. So I started studying it, but then I realized, here's what I realized in short order. Bitcoin's a$200 billion asset. Bitcoin is a hive of cybernetic hornets doing the bidding of Mother Nature protected by a wall of encrypted energy, right?

1:17:07That's what I saw once I started to dig it. It's a living cybernetic hive creature with a wall of encrypted energy and lord help the guy that tries to shove his hand into that hornet's nest and steal from it, right? And I thought, that's interesting. And then I studied Ethereum. That's the number two. And then I realized Ethereum is something totally different, a world computer, and they're still chasing after functionality, all sorts of functionality and more power to them, decentralized finance, it's interesting, it's experimental. It might be something that micro strategies build something on in the future for Ethereum.

1:17:54Yeah, I mean, I guess what I'd say is, I saw all that stuff. But there's still a question of, will it work? It has to be proven, and there are centralized competitors to it. And they're not done with the functional architecture. I mean, if you understand proof of work, then when the founder says, well, we think we're going to switch to proof of stake because we don't think proof of work will work for us, then, you know, you realize there's a fundamental dogmatic set of assumptions and there's an existential debate going on there. sure you know fast forward to the conclusion which is if you look at all the proof of work crypto networks bitcoin is 92 percent of them all the next competitor is two percent the next competitor is one and a half percent the next competitor is less than one percent it's the market screaming to you that there's a winner right so when everybody says well you know there might be another one.

1:18:51No, there wouldn't be. Well, this might be the MySpace. Well, no, if you knew anything about the history of MySpace, you would know that MySpace flamed out at a billion dollars. You know, it flamed out when it was less than 1 % of what Bitcoin was. You know, Bitcoin was never MySpace. Bitcoin is the Facebook of closed digital monetary networks. And it's already crushed everything. And it's software eating the world, right? Software eating money. And it's only going to get more powerful. So now we're back to my issue. I know I got to buy hard assets? It's a question of silver, gold, Bitcoin. And now I start thinking about it.

1:19:43You know, and here's what I'm thinking, Raul. It's like, I think everybody's too short term on this stuff. You want to really understand it. Step back from the noise. Look at the big picture. How does this feel across time and space? I'm going to take$100 million and I'm going to give it to my successor in a hundred years? Okay. You want to send something to your grandchildren or your great grandchildren. If you want to endow anything of value, a park, a company, an institution, a foundation, a family, a whatever, whatever your, a religion, a political system, I don't care what it is. If you believe in it and you want it to be here a hundred years from now, you got some money how are you going to convey the hundred million dollars across a hundred years without losing it would you invest in apple stock apple might not be around would you invest it in dollars traditionally traditionally real estate's been that answer but even that's risky okay so you want to buy a hundred million dollars of real estate in california yeah no okay do you know what the property tax rate is in Florida?

1:20:57That's true. I forget about US property taxes. I know. It's 2%. If you take$100 million and you buy Florida real estate, it's$2 million a year. And by the way, it gets appraised up every year, which means that over 30 years, you'll lose it all. The property tax rate on anything in the real world is going to drain it from you. You can't buy real estate. If you look at all assets you can buy, you buy a stock, you buy an equity, you've got a property tax, you've got an income tax, you've got employee payroll taxes, you've got regulation, you've got customs, you've got trade, you've got tariff. Now I'm going to come back to you with a question.

1:21:37How are you going to convey your family's wealth across the generations for 100 years? And if you don't, I'll just stop right there. How are you going to do it? You tell me. Well, the only thing is, and gold is not easy because where do you store it and how do you pass that along? Okay. So let me stop you there and tell me what the, I'm going to tell you what the problem is with gold. I thought about it. Take your hundred million dollars and put it in gold in a vault. Gold miners are going to print 2 million, 2 % more every year. Okay. If, if gold miners produce, if you own the entire supply of gold in the world, and if it was pure, right for London delivery, gold bars, and it isn't right.

1:22:22But if it was, and if you were sure you owned it all, if gold miners create 2 % more every year, the rule of 70 says every 35 years, the gold supply doubles, which means that you would own half the gold supply in 35 years, a quarter of the gold supply in another 35 years. And in 100 years, you're going to own about 15%, maybe even 12 % of the gold supply. So here, you'll like this. So I was thinking through something similar in a different way. I just wanted to look at the Fed balance sheet growth over the last whatever period I wanted to choose. And I looked at every asset against it. The Fed balance sheet outperformed everything, outperformed gold by 50%.

1:23:07So gold's done a bloody lousy job. It's better than many things. There's only one asset, only one asset that did it, and it killed it, was Bitcoin. RAOUL PAL Okay. And by the way, and I know why now, and I'll tell you why I think it is in a second. I thought I was going to buy gold, and a very smart guy that works for me, my conciliary, he said, Mike, I remember gold back in the 70s and the 80s, it was$600, and then it traded down, and it's gone nowhere for a decade. And I'm like, everybody says gold is the ultimate hard money. What's the problem? What am I missing in this picture? And then here's what I realized.

1:23:51Gold's got an inflation rate of 2%. over time, that means$100 million is going to be worth$12.5 million at 2%. You're going to lose 85 % or 87 % of your wealth if it inflates at 2%. But it's worse than that because gold's not pure. Half the gold supply is floating around. It's not all stamped good delivery bars in London. That's the second problem. The third problem is if gold price goes up, every miner is your enemy. They're going to print more. They're going to mine more gold. They're going to ship more gold. They're going to capital invest in more gold. This is the dilemma of every commodity business.

1:24:32And I used to work for commodities at DuPont. The dilemma is if the price of the commodity or let's go back to oil fracking. We fought wars over oil, Raoul. We went and fought wars over oil to protect our oil. What happened when the price of oil went to$100 a barrel? Fracking. We invented a new technology. And by the way, what happened? The US produced so much oil, it became a world crisis. We doubled. We produced 5 million barrels of oil a day. And now we produce 10 million barrels of oil a day. And then 11 and 12. And everybody was like, hold it. You're going to produce too much oil. OK? And then you realize, OPEC, the secret to making money in oil is a cartel.

1:25:18John D. Rockefeller understood it, a cartel. Anything that humans can produce with their brains and with capital is going to get overproduced. And that's the problem with using a commodity as a money. Because ultimately, if gold is successful, then intelligent people are going to produce more gold, and you're going to double, triple, quadruple the supply of it. RAOUL PAL, MD, anything with a supernormal return gets arbitraged away. So those returns are only available for a period of time. Everybody gets into the game. The margins collapse. I mean, it's everywhere. I mean, that's capitalism. RAOUL PAL, MD, And so people that think they're buying hard gold, the problem, by the way, we could have another cast.

1:26:05I could talk with you for two hours about the technical problems with gold. But I don't want to get derailed by that. I want to basically start with a simple premise. If I look at Bitcoin, there's a lot of people in the Bitcoin community that talk about stock to flow and how it's going down. And I appreciate it. And I think that's a good contribution. But I have a different take on that as a public company CEO, which is this. Every time I print my share count, there's only one number that matters. I print fully diluted share count. No one ever asked me, well, how many shares do you have this minute?

1:26:45Nobody ever asked me how many shares are going to vest with employees next month or next year. They just asked me one question. What's your fully diluted share count? We take your earnings, we divide by that, we're done. Take your revenue, divide by that, we're done. The fully diluted Bitcoin count is 21 million. Done. The fact that it's going to trickle out, I don't care. Fully diluted Bitcoin count, 21 million. Instead of saying stock to flow is higher, now stock to flow is exponentially going to infinity. Stock to flow is infinite, which means it's infinitely hard because a rational actor, and I consider myself a rational active.

1:27:26I didn't buy Bitcoin expecting I was buying this much Bitcoin divided by 18 ,500 ,000. I bought the Bitcoin thinking I was buying that share of 21 million. And I knew that. And so now we're back to a simple thing. You take your$100 million and you hold it for a year in fiat currency, you're going to have 1 % or half a percent of it left. You're going to lose 99 % of your money in 100 years. I know that to be the case. I have a house in Florida, a nice house in Florida. It would cost you$15 million to buy that house,$20 million today. I have the sale deed for that house in 1930. You know what the number is on it?

1:28:13$100 ,000. a hundred thousand dollars in 1930 count the number of years between 1930 and the year 2020 and figure out what the uh depreciation rate was on fiat currency of the u.s dollar i it's it's you're going to lose 99 of your money if you put it in cash okay so we all agree on that okay this is the thing that people don't say you're going to lose for sure 85 of your money if you put it in gold. For sure. By the way, you're assuming that nobody invents a better chemistry for gold. We don't find gold anywhere else. Nobody invests any more money in gold mining. Nobody gets any smarter. And the gold price doesn't go up too much.

1:29:01And if all those things are true, and people still use gold, you're going to lose 85 % of your money. But if human ingenuity kicks in, gold is a commodity, you're going to lose 90 % of your money in gold. now if you put your money in bitcoin you're keeping it all you're not losing anything once if you don't believe in fully diluted bitcoin count you have a 15 loss in 100 years but if you do believe in it there's no loss now let me give you another analogy you want to cross the atlantic if you cross the atlantic in a vessel made of fiat currency it's like stitching together a bunch of inflatable rafts.

1:29:43By the way, you're crossing the Atlantic in an inflatable boat with a leak in it. Or you want to cross the Atlantic in a gold vessel, you're crossing the Atlantic in a wooden ship. It's sort of good, but it's rotting. It's a wooden ship. It's better than inflatable. It doesn't have a leak in it, but it's wood and it's going to decay. It's decaying two, 3 % a year. You're crossing the Atlantic in Bitcoin. It's a steel hole freighter. The thing about steel, you know, like I say to the guys and say, well, why do I want a steel boat? They go, well, because steel is indestructible and the welds are harder than the original steel.

1:30:28If you put a hole in steel and you weld it, the weld is stronger than the original material. Steel will last as long as you maintain it will last forever okay so rubber boat wooden boat steel vessel and now here's an epiphany right i mean if that's not enough right i mean like there's no comparison between losing 80 to 90 percent of your money versus not losing any of your money there's no comparison but here's another epiphany i'm an aeronautical engineer from mit i studied i studied spaceship design. I studied aircraft design. I studied building design. You know, the entire science of civil engineering requires one element.

1:31:14You know what the element is? Steel. Think about it for a second. I build a building with wood. You can build a two-story building. You ever see a five-story wooden building? I built, you know, that's fiat. I build a building of stone, you know, and masonry. Look at all of Europe, all of beautiful Europe, every building in Europe, five stories, six stories. That's as far as you go, you know, with brick. What happens when I invent steel? I build a 50-story building. You think steel is twice as good as bricks yeah you you could build a hundred-story building right steel steel is is elemental to or instrumental to new york city there is no new york city without steel you there is no skyscraper there's no science of civil engineering until you invent steel right you could say iron maybe if you want but but without the element without the element of steel there's no civil engineering.

1:32:19Now flip to aerospace. You ever see a plane made of steel? No, they don't fly. Steel is the perfect element except for the fact it's too heavy to fly. That's why we use aluminum. No aluminum, no airplanes, no industry, nothing. Take away aluminum, the entire aviation industry goes to zero, right? Andrew Mellon made his money on aluminum. Andrew Carnegie made his money on steel, right? These are fundamental things. These were technologists. The entire industry is based on it. Now, the gold standard, good idea in the 19th century, right? The best idea you could have in the 19th century. But I mean, just like wooden ships, pretty good idea to have wooden ships if you're the British Empire, if that's the best you can have.

1:33:16You know, now along comes Bitcoin, cryptocurrency. It's, it's, when I say it's harder than gold, I mean, it's not just 10 times harder because it goes, it goes 100 years without losing any of its value. I say it's harder because it's an organic nest of cybernetic hornets feeding off of the of encrypted energy. It's a living thing, which means that the miners are going to keep upgrading their equipment. The developers are going to keep upgrading their development. The nodes are going to change. Everybody in the ecosystem is going to change. And they're changing in this terrifying Darwinian, capitalistic, libertarian, aggressive, winner-take-all, hold no bars, you know, no, No, you know, no one company, country, companies, like I've been CEO.

1:34:17I thought I was right. I was wrong. You could be the most brilliant CEO in all. You know, anything that's controlled by a CEO is crippled. Controlled by a state is crippled. Controlled by a country, it's crippled. This entire thing is its own ecosystem. You know, gold is not going to get a million times smarter in the next 10 years. It's not thinking at all. It's a lump of metal lying there. Right. What's, you know, Nicholas Taleb wrote Anti-Fragile. I think Taleb is brilliant. You know, I love all of his books, read every one of them twice. Right. Bitcoin is an anti-fragile evolving thing. It's hardest currency because it's getting continually exponentially harder.

1:35:08It's getting harder. But it's also smarter, stronger, and faster than gold. It's smarter because I can create a computer program. I can put it on a machine behind that bar and I can have it make a million trades with your crypto every night while you're sleeping and move it around. Right. But I can't do it with gold. If I want to move one hundred million dollars of gold, I got to put it on a jet, fly it around the world. It's two hundred fifty thousand dollars to physically deliver one hundred million dollars worth of gold. I can physically deliver$100 million worth of Bitcoin in five bucks, right?

1:35:46$5 in 30 minutes, you know, depending upon how risk averse you are. But if I want to move it, I can put a piece of software on it. By the way, Raul, you know, when I move$100 million into a crypto exchange to buy crypto, I got to talk to like three bankers on the phone and they're asking me, they're asking me for my birthday, Raul. You can go on Google and you can Google Michael Saylor. And you know what the, you don't even have to click. Do you know what Google puts underneath the Google for my birthday? You know, so the banking system is running about a million times slower and less secure to move this stuff around.

1:36:30When I put it in, when I put this, this elemental energy into Bitcoin. It's smart because it's getting smart as fast as the smartest crypto bank can program something intelligent. And I am in awe of how many of these things are going on so fast. DeFi and CeFi, right? It's not clear to me whether you're going to use DeFi or CeFi. It doesn't matter. Whatever is going to work is going to work. It's all happening, yeah. It's faster because it's dematerialized gold. I look at all my employees and I say, we're in the virtual wave, guys, you can now move at the speed of light and bend time and space.

1:37:07What are you going to do with it? Right? If I can actually take your$100 million worth of gold, dematerialize it, chop it into 10 million pieces and move it around the world 100 times a second, something new is going to happen. And then it's stronger. It's stronger because you can liquidate$100 million worth of Bitcoin on a Saturday afternoon in a foreign country, in a foreign currency. You can do this, and you might take a 3 % haircut. You might be like, holy crap, it's volatile that moved down 300 bucks. Well, 3 % haircut to liquidate$100 million of gold on a Saturday afternoon, try doing that in Istanbul.

1:37:56Try liquidating$100 million sitting in a vault in New York City in Tokyo on an afternoon on a weekend, right? So the issue is gold is going to be audited once every, by the way, I apologize for digressing, but you can't make this stuff up. It's really hilarious. When I borrow$100 million from a conventional bank, you know how they verify my collateral they ask me to have my accountant prepare a financial statement as of the end of last fiscal year and so I actually deliver a statement that has all of my assets on it and if I'm borrowing money on June 30th I'm giving you a January 1st financial statement.

1:38:44And I'm asserting that I have not double pledged the collateral or committed bank fraud. And my accountant is asserting it. And that's a pretty serious thing. But I'm saying it tongue in cheek, right? Yeah, it's ridiculous. Why do people care about publicly traded companies? Well, a public company has more credibility than a private a company and has a lot more credibility than a private individual. And here's one reason why. I and my CFO sign Sarbanes-Oxley statements, financial reports, and every quarter I sign my financial report. If I lie to you, Raul, it's a crime, right? I go to jail, right?

1:39:30If a public company officer misrepresents the state of the balance sheet, the state of the business. You asked me, like, how's the future of the business? I'm going to equivocate. I think we're, you know, the future of the business will be the future of the business. And we're just really excited about working on the future of the business. It's because it's a crime for me to mislead. Okay, so the way that we actually certify collateral is via regulations and criminal statutes. And that's why the most credible entities in the world are American publicly traded companies, right? Because everybody knows that if you trade on the NASDAQ or the New York Stock Exchange, and you're a CEO or a CFO of an American, you know, if I heard a guy that worked for a guy that worked for a guy that worked for a guy that worked for me in a foreign country was actually doing something sloppy, I'm thinking, well, Foreign Corrupt Practices Act makes me criminally liable for that.

1:40:31And that person gets his head chopped off. OK, so so that's the way that you actually pledge collateral normally. With Bitcoin, we've totally turned on his head. Anybody can inspect the fact that I own the Bitcoin in one second. Yeah. And and every 10 minutes, you could take a complete audit of everything. I mean, I wrote the article about it being the world's most pristine collateral. I mean, it's perfect for the foundation stone of everything. As you were talking about, it's the steel of an entire new financial system is this. I think what you've said is brilliant, but I don't think it's understood.

1:41:07When you say it's the world's best collateral, the world is operating on gold is collateral. It gets audited every seven years or every three years. It might be there. It's impossible to move. It's impossible Because of rehypothecation and the reuse of assets, it's not clear. Bitcoin ownership is guaranteed. So it's so pristine. The only thing we haven't got is a yield curve. So yes, you've got it implicitly in the fact that it's got a limited supply. But eventually, there will be a market for you to lend out your Bitcoin. and it's going to trade at a premium to bonds, US bonds, because it's like you lending out a piece of art.

1:41:50Well, fuck it. If somebody's going to borrow you a piece of art, they're going to pay you for it. I totally agree. And I think the yield curve is coming. And when I look at the forward contracts, it's very fascinating to me. But the summary of my entire meandering analysis is Bitcoin, if it's not 100 times better than gold, it's a million times better than gold. And there's nothing close to it. And most people, they're focused upon stock to flow is better. And what they haven't factored in is that the smarter, faster, stronger makes it a million times better. And it's steel to masonry for the firmament of the 21st century financial ecosystem.

1:42:34I love that analogy. So here's another question for you. So you make the brave decision to do this. It doesn't seem brave to you because it feels like the most intelligent, rational decision you can make, right? But to somebody else, oh, my God, what's he doing? So you go to your CFO and go, OK, I've got Bitcoin. Currently, it's marked as an intangible. We don't get any appreciation of the value of it. And gap accounting doesn't work. How the hell did you get through all that shit to put it on the balance sheet and not to be marked where you bought it all the time? So now we shift to the subject of how do you build consensus in an institution or a publicly traded company?

1:43:17Yeah. Because, yeah, it's one thing for me to believe it, but there's a lot of other fiduciaries, and they have to understand it, and they have to assess all the risk. So what happened next is I started cheerfully assigning homework to all the officers and all the directors of the company. And you can imagine some of your podcasts got linked to them. A lot of Pomp's podcasts got sent to them. um eric vorhees debate famous epic debate with peter schiff over the future of of fiat versus bitcoin as the world's best currency got sent to them bitcoin standard uh the bitcoin center lynn alden's paper on three reasons i'm now bullish on bitcoin got sent to them right um uh andreas antinopoulos is you know what is bitcoin got sent to them you know lots of so lots of compulsory youtube watching guys i'm going to need you to watch these things on youtube then i'm going to need you to read this then lots of individual meetings meet everybody i'm going to meet, you know, I'm lucky.

1:44:33I've got a very intelligent board. I've got a very engaged board. I've got a very, a very intelligent, you know, I met with, I met with my general counsel and, and I, and I was worried, you know, like general counsel is going to tell you a million reasons. You can't do something. I said, well, I, you know, I think we should be thinking about Bitcoin and I, you know, and this and this and this and this and this and this, you know, and I waited for him to tell me no way in heck can we ever do this ever and he goes yeah that's a very interesting thesis um you know i bought bitcoin two years ago love it you know like i was like oh i get but but you know so it turns out that uh you know i talk with my with my board and it turns out that half of them had already invested in Bitcoin personally.

1:45:22So we went through this round of study it, think about it, evaluate all the options, meet as a group, break. After that, you know, the CFO went off and he like, he met with our auditors and our outside auditors and more auditors. And the NRGC met with attorneys and more attorneys and more attorneys and our outside attorney. And then we started sifting through all the, you know all of the regulatory filings of everybody with that you know i went down the rabbit hole they went down the rabbit hole you know and the board went down a rabbit hole we all came together and and i'm just i'm really proud of the team but uh but at the same time i'm i think uh i think it's it's important to say that rational people if they're put if this is put on the table, and if they're given enough time and the right resources, they all unanimously come to the same conclusion that I come to.

1:46:25No dispute, no dissent. Everybody's got to be part of the process. And you've got to give everybody time to absorb it. And you've got to do your due job. How do you get the auditors across the line? So you read internal consensus, fine. Okay. now you've got to have the bloody auditors agree that you can do this okay well the auditors uh give you the feedback on how you're going to account for it yeah and that's their position and they're good at telling you how to do that right and so we take their advice and at some point we talked to lots of different auditors and i i do think that um that we're um we're leading the way here like uh clearly in fact it's news that we did this it'll be news when we uh when we put out our 10 q's and if you want to see exactly how it gets accounted for people be looking at the 10 q's to figure out what does that do the balance sheet and the pnl and that's right but let me but let me make one point ral which is you can run your business in order to in order to make your gap accounting beautiful.

1:47:38If you did that, you would never issue a stock option. And if you look at every successful tech company, they have stock option expenses and every screaming success, you know, Facebook comes public and there's huge amounts of stock options that they've issued and they take non-cash charges for them. So the result is most public companies have pro forma results and they have after adjustments. There are mega adjustments based on currency fluctuations and all sorts of non-cash intangible things. And the investment community looks at those and generally they focus more on the as adjusted pro formas.

1:48:19As long as you explain what it is, then people don't care. Because Gap doesn't necessarily keep up with the reality of the business. like for example if i told you you know would you buy a company that's going to go up in value by a factor of 10 if it had a if it printed a gap loss or would you not and also the other thing is as you told me before that the investors valued your cash at zero so what the hell you got to lose if you say well it's a non-zero asset now and whether it's whether or whether it's not including your gap accounting it's like well you wrote it off to zero anyway so now you can either value it as an option or not?

1:48:56Yeah, let's say if we buy Bitcoin and it gets valued as an intangible, and then we're forced to write it down based upon the volatility, it could happen. We could buy a bunch of Bitcoin. It could be written down by 50%. Then you have a gap right down and intangibly, it carries an intangible on your balance sheet. On the other hand, if the value of Bitcoin doubles, If you have a billion dollars of Bitcoin, right, and the gap accounting says you're only showing 200 million, the investors are going to look at that. They're rational. I mean, by the way, the investors are rational and they normally will understand that you have a billion dollars worth of something, even though gap accounting doesn't let you market as a billion dollars.

1:49:46But if the market is irrational over the long term, you sell some of the Bitcoin, buy all your stock back. Right? In fact, in the extreme, if you have 10 billion - If your net asset value is worth more than the value of the company outstanding, you buy your shares. You buy the company. At the end of the day, if the Bitcoin's worth 10 billion, and then the accounting says it's worth zero, and if the investors insist upon looking at the zero accounting and they value you at nothing, You buy every single share of the stock back, and you've got a private company with$9 billion worth of Bitcoin in it.

1:50:22But there's a point to what I'm saying, which is you can't run a business in order to make the gap accounting optically look perfect. If you did that, you wouldn't be in any business that outstrips the rate of accountants that have a 30-year lag. Yeah. And also just the point being is you have a reputation. The firm's been resistance for a long time. As long as you can explain to people what you're doing, nobody cares. They either like it or they don't. That's what shareholding is. And that's OK. I think we have an obligation to be as clear and articulate and respectful to our shareholders as we possibly can be.

1:51:04And if you look at what we've done over the past three months, we have tried to be extraordinarily transparent and methodic. You know, first we say we think we've got a, you know, a treasury issue and we need to either buy our shares back or invest our shares or we need to buy our shares back or invest our treasury. Then we said we've done the analysis and we're going to do a$250 million tender and we're going to do$250 million investment or we've done it in Bitcoin. Then we let the investors decide what they want to do. That's their choice. Right. And then the investors decide to tender some of their shares.

1:51:44And we buy some of those shares. And we have some extra cash. Then we take the extra cash. And then we tell the market, it looks like we have some extra cash. By the way, our treasury policy is to invest in Bitcoin. Then we invest in Bitcoin. And if anybody's holding the stock, right, it's just very important for them that they understand what's going on and I can't tell you how to think about this right but by the way it's like you know you would hear rumors like oh I don't think an investor will like it so we went we met with all the investors you know it's like 80 percent of investors yeah that's a probably that's kind of a good idea you know that's kind of interesting right right and and uh so and then they're like they go to me well this one investor he was kind of concerned about it and he had a problem with it?

1:52:37You know, I met with him and he goes, well, why don't you just like buy back all the stock? And I said, well, you know, the issue is we would decapitalize the company. If we buy back all the stock, we'll have no treasury assets. And if we have no treasury assets, no capital, then that puts our customers at risk. And so, you know, I have to be able to, my customers are governments, banks, big organizations. I need to be able to represent to them that for the next 30 years, they can count on me. So I can't like drain the entire assets of the company, you know, even though, you know, and that's the problem with just buying, with draining your treasury.

1:53:17I have to have a treasury balance. And so then I proceeded to explain the Bitcoin thesis to him. He cuts me off halfway through and he goes, oh yeah, I get it. I own Bitcoin. Okay. So, so the point is, this is an example. So where everybody's really afraid, everybody says, oh, that's a really ballsy, risky, you know. But they're all long themselves. They're all long Bitcoin. It's the same in the hedge fund world. Paul Tudor Jones goes, you know, you're the Paul Tudor Jones of the corporate world. Paul was the first guy to stand up and go, well, I've bought Bitcoin in my fund. Well, guess what?

1:53:51Every bloody fund manager I know owns some Bitcoin already. And, you know, not to beat up on Paul Tudor Jones if he's listening, but Paul, like if you believe in it buying one percent but one percent is like i go to vegas and i want to i'm the rich guy that goes to vegas with my friends and i want to convince them i'm cool and i go yeah i really get gambling i really believe in gambling so i take out a hundred thousand dollars i put on a table i pay blackjack for a few hours and i impress my my friends that i'm really cool that's That's one view. On the other hand, if you're really a baller, you're Howard Hughes.

1:54:33He went to Vegas. Howard Hughes bought Vegas. If you really believe in gambling, if you get gambling, you don't gamble$100 ,000 or 1 % of your wealth in Vegas. You buy the casino. RAOUL PAL Yeah, but Paul doesn't care. He's rich enough. For him, and again, whatever he says and does the two different things. I know him very well from the past and Paul can move his positions on a dime. We've seen him be three or four times levered. The guy knows what he's doing. So even if he says 1%, that was that snapshot of that afternoon that he finished that note. It could be anything. Okay. And I noticed like the hedge fund guys, they either say the opposite of what they're doing or they say, or they talk their book.

1:55:23And it's amusing to do that. But I mean, to state what I think is pretty obvious, once you understand Bitcoin, right, you have anxiety about being short. Once you understand it. Completely terrified of being not having enough. And if that's the case, then if you're running$10 billion of money, you go take$1 or$2 billion of it or three or you just buy it all like i mean don't you sit around i sit around i'm think i'm trading this bitcoin row and and to buy this much you can't buy it in a minute or an hour you can't even buy it a day i'm when i'm in the market i'm buying bitcoin four days in a row every minute are you doing it yourself you haven't given it to anybody else i gotta i i control it all but you know yeah i i yeah take if it's worth doing do it yourself so here's look i want to ask you two questions yeah questions the practicalities right so there is the the terrifying moment when you transfer your bitcoin from the exchange to your hard wallet and you're like fuck i hope i put in the right numbers because there is nobody i can call up at the bank say oh i made a mistake in the transfer.

1:56:49Did you not get the terror of doing that? And how do you store it? Okay. Well, so a couple of points I make. One point, I can't give you too much details about how we do it and how we handle our crypto just for security reasons. Obviously. Right? I mean, in private, off the record, we talk about it, but in public, I can't. But generally, our approach is to work with institutional-grade crypto exchanges and institutional-grade crypto custodians. And then like handling nitroglycerin, handle it very carefully, right? I handle my crypto very carefully. And that means that before I, you know, we're whitelisting everything every which way and I'm moving 0.01 Bitcoin before I move anything material, right?

1:57:40And, you know, like, you know, the first time it took me like 60 minutes or 90 minutes to get a confirm, man. I was like, you know, I'm working on it. But let me make the next point, which is if you want to trade this stuff, you need a great team of like over-the-counter brokers you work with. And they have to have great technology because you're going to buy this thing in 89 ,000 small bites of 0.2 Bitcoin each. if I'm in the market you don't know I'm in the market right I think I get a laugh when I watch people come in and hammer the price up by a hundred bucks and people are thinking is that some whale is that well if you wanted to buy a hundred million dollars of it there's no way you're chasing it up a hundred bucks so I'm waiting for someone to panic at which point I'm going to buy ten million dollars in one minute why they think they're getting the better of me Right.

1:58:36That's the way you're going to do that. And then my last point is, while I'm sitting there for all those days and I'm trading this stuff and I'm like. Day and night, right. Day and night trading it. Everybody thinks, well, Bitcoin is too volatile. When people like me or these other institutions get into it, we've got computer programs that are trying to buy it every minute of the day, day and night. And pretty soon, there'll be one set of computer programs talking about another set of computer programs. There's no people involved. Right? There's no people involved. And the volatility is collapsing.

1:59:11Right? It's already collapsing. Anybody that's watched this stuff over the past three months, you would see the volatility is coming in. The other day, I'm watching it. Bitcoin's less volatile than Apple. It's definitely less volatile than Amazon. It's volatile than all the big tech companies. That's the story. My last point, it's like, who are these people that are selling it to me? Like, I can't believe someone is willing to sell it to me. But I'm thanking my lucky stars. Like, hit me again. Hit me again. Hit me again. Right? And I see these guys on crypto Twitter, and they're like, yeah, Sailor's going to buy it, and he's going to dump it.

1:59:51Or he's going to buy it, and he's going to, like, buy another company with it. Or he's going to buy it until he gets, like, this profit. he's going to do whatever. I'm like, they don't really, there's a lot of traders in the market. They don't understand the mindset of longs. Like I'm buying it for the dude that's going to work for the dude that's going to get hired by the guy that takes over my job in a hundred years. I'm not selling it, right? When it goes up by a factor of a hundred, I might be borrowing a little a little to go buy something that i want but this isn't yeah what am i gonna buy with it That's better than what I'm buying.

2:00:34Every other treasury asset, and I count$250 trillion worth of stuff. This is not about gold, right? Gold, fixed income, sovereign debt, cash equivalents. Every other treasury asset's got a negative real yield. What am I going to buy with it? There's no other asset to buy with it. And that's why I got into the irresponsibly long thing. In the end, I just looked at everything and said, right, fine. You can trade around, do stuff. But if there's anything you actually want to put a real position in for an extended period of time, there is only one thing I can really see. You know, I've got gold in a storage vault, and I'm like, I can't see the point.

2:01:15You're tipping me over the edge of saying I can't see the point. I like gold. I have no problem with it. You know, I'm not going to hold it for 100 years. So I don't really care. But I kind of like Bitcoin's going to swallow the world. If I told you gold has a minus, it's got a minus 3 % real yield. Yeah. But, you know, I don't mind because I'm likely only to hold gold three years. I'm not, you know, Bitcoin's different for me, but gold for three years through this particular transition phase. So maybe it goes up 100 % and I lose 10 % in negative real yield. That's okay to me in that time horizon.

2:01:55I think that, and this is where time horizon matters so much. If your time horizon is 12 months and you're a hedge fund guy, you're like looking at the volatility curve wave, right? You guys are trading gamma and stuff like that, which I got degrees from MIT, and I can't figure out gamma yet. So I need a speech on that. But you're living in the world of minutes to days to weeks to months to years. Let's say when you go out more than a decade, if you go out more than a decade, all this stuff, all the noise drops away. Everything gets really clear. When you come in less than five years, there's a lot of different options you got to consider.

2:02:42The real question is, what's your time horizon here? Yeah, 100 % agree. That's exactly the conclusion. For me, why I'm so interested now, really intensely focused, is across almost every single time horizon, it now looks superior. That won't always be the case. There'll be a time when, whether it's technology stocks, whatever it is, will outperform Bitcoin. But when I look at almost every time horizon, going from a month, that would be the shortest I'd look at, a month out to 100 years, Bitcoin looks like it's going to be everything for the time being. Great. That's a home run opportunity. RAOUL PAL So, Raoul, that makes the decision easy.

2:03:24RAOUL PAL Yeah. I need to sell my gold. RAOUL PAL And that's why I think, if you're really a hedge fund person, and you really get Bitcoin and the decision is so easy, are you really going to tell me you've decided to take 1 % and hedge and try it? If anybody really gets Bitcoin, there's nobody investing 1 % of their portfolio in it. No. No, exactly. I said it. It's by far and away my biggest position, by far and away, and almost a very significant part of my liquid net assets. outside my properties and shareholdings and stuff, in Real Vision or whatever. Bitcoin is the bet. I said the other day, I said, this is not a speculation, nor is it a hedge.

2:04:15This is a deliberate corporate strategy to adopt the Bitcoin standard. That's what we're doing. right and and and i think that lots of people want to minimalize what's going on here or they're afraid they're in fear to actually come out and say what they believe mike they don't understand yet people are it's like as you know you suddenly get to that point where it's like oh christ i get it now you kind of think you get it for a while then you question yourself then you sort of get it then you realize you know nothing and then you come to the epiphany is not knowing anything about it apart from one core set of things, that this is superior to anything else around it.

2:04:57It could be an entire ecosystem, a whole structure. That's all you need to know. After that, it's like, okay, I've got hard money with upside. Brilliant. RAOUL PAL So now we're sitting here waiting to see how long it's going to take for all the other rational actors in the world to come to the same conclusion. RAOUL PAL Exactly right. That's the journey. We're launching this crypto channel on Real vision, part of the same bet. I know where this is all going. And I've been talking about this in 2012. And I knew that macro and crypto were about to collide. And I knew it was going to happen in the next recession, or I didn't, I guessed it would.

2:05:32And here we are. And then what's happened is you've actually moved it on further by saying, okay, it's not just about markets and investments and everything else. We're now talking about a new standard that becomes the new gold standard, i.e. corporations around the world, Apple with their balance sheet, and everybody else should think of this as a reserve asset, which was my point that I've been talking about is this is the world's most pristine reserve asset. And that's what you're doing. You bought a reserve asset and put it on your balance sheet. Brilliant. Imagine a CEO of a construction company that said, we thought we'd start building buildings with steel this year.

2:06:12And every other construction company saying, oh, what a risky thing. That's too expensive as well. And all the other arguments that you would have had, we've not tested it in earthquakes or whatever it is. I think we've covered a lot of ground. And I think we'll probably have another conversation down the track because there's a load of things. I love the philosophical things that you're thinking about and just also how you've observed the tech industry and everything else. So I'm definitely going to get back in touch with you again. And as your thinking evolves and as other people thinking of old.

2:06:42It's just nice because you're outside of the noise of a lot of the financial market stuff, and you're looking at it differently. It's brilliant. And just look, bravo. As you said, it's a logical conclusion, but most people haven't reached it yet. You've done something really inspiring for a lot of people. Well, I would return a compliment, though, and point out that I was obsessing over everything that you published before we made this decision. And so the truth is you're more that you and the entire crypto community that went out there, especially on YouTube and published everything. They're the inspiration and it's a wonderful community.

2:07:19And you can learn a lot on YouTube. So if people ever wonder, does anybody listen to the stuff we say? The answer is, yeah, I listen. Every one of my board members listen. So we wouldn't be here. I wouldn't be here talking to you, nor would I have done anything had you not said what you said when you said it. That's very kind. Otherwise, I welcome the opportunity in the future. Thanks for having me. But yes, I loved it. I reached out on Twitter. I said, listen, I'd love to tell your story. And he replied, I love Real Vision. And that's great. We're all doing the right thing, spreading the word.

2:07:59Mike, brilliant to speak to you. Thank you ever so much for your time. I'm sure people are going to get a lot out of this. Thank you, Ralph. Hey, Real Vision viewers, a quick pause to introduce you to today's sponsor, Axelar. Axelar is building the rails for the next wave of global finance, not just crypto, but the future of how assets move, how markets connect and how institutions plug into open systems. Think of it this way. Bitcoin brought digital gold. Ethereum brought smart contracts. but Axelar is bringing connectivity, the secure link between your favorite blockchain and traditional financial institutions, rushing to plug in.

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